IRISH people retire later than others in the European Union, but end up with the smallest pensions, according to a new OECD report.
The report reveals that workers here retire later – at an average of 64 years – than in any other EU country but that their pension, at around 35% of the average wage, equates to the lowest income of all 31 OECD countries.
A new EU report also reveals how private pensions here lost more during the crisis than those in any other member states, because so much of the money was invested in equities likes stocks and shares.
The EU has warned that considerable reform is needed if countries are to meet their pension commitments in the future.
As Ireland plans to increase the state pension age to 68 in an attempt to combat the impending crisis, the EU has said the retirement age should rise automatically across the EU in line with increased life expectancy.
Edward Whitehouse, editor of the OECD report, said the poverty levels among Ireland’s elderly was largely due to the relatively low number with private pension schemes or savings to draw on when they retire.
An estimated one million Irish workers currently are not providing for their retirement.
The economic crisis has also hit the prospects of future Irish pensioners harder than most, the OECD and EU figures show.
Irish private pension funds were the worst hit in 2008 when close to 38% was wiped off their value.
Mr Whitehouse said this was due to the fact that the amount invested in equities was much greater than in any other OECD country, including the US.
“They gave the highest return in good times but proved a poor investment in bad,” said Mr Whitehouse.
The Czech Republic and Germany, on the other had hand, had just 10% of their pension funds invested in high-risk investments.
The latest figures show that last month these losses continued, with none of the managed funds making enough over the past 10 years to even match Irish inflation.
Chairman of the Irish Pensions Board, Tiarnan O’Mahony, pointed out that while pension funds performed strongly last year, this has not offset the very significant losses of the previous two years.
As a result, about three-quarters of defined benefit schemes – seen as the safer pension funds – are in deficit and may result in pensioners not collecting as much as they are due.
In Ireland, half of all pension schemes in the private sector moved to defined-contribution schemes over the past few years, and they have also been badly hit by the equity losses.
The OECD also warned the Government to be cautious over using the pension fund to recapitalise the banks after it withdrew €7 billion or more than 40% of the assets for that purpose.
Under the scheme the interest on the preference shares issued by the banks to the Government is being paid back into the fund.
The OECD said that while this is not ideal, it is much the same as borrowing the money but warns that it should be a once-off.
The Government has put forward a new pension framework that would see workers paying 4% of their incomes into a pension scheme, with 2% from employers and a further 2% in tax benefits from the state.
Mr Whitehouse praised the mandatory scheme proposed but employers groups, including IBEC and the Small Firms’ Association, have warned they will fuel wage demands.
© Irish Examiner Ltd. All rights reserved